While quick to criticize, China has its own problems

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For the last few days, the Vice President has been touring Asia working to improve relations with the governments of the Far East and selling the debt ceiling deal to our largest creditor.

Recently governments around the world, including China’s, have been quick to criticize Washington’s handling of the economic crisis and the years of fiscal irresponsibility that have put us in this position. While they have good reason to do so, many countries may want to take a look within their own borders before starting to point fingers. And this includes China.

Despite all the apocalyptic pronouncements about America’s budget problems, the reality is that the U.S. has a higher credit rating than China and, unlike Beijing, has never repudiated its sovereign debt. More important, the People’s Republic has been understating its debt for years to avoid global attention and criticism.

Indeed, China claims its debt-to-GDP ratio—the standard measure of sustainability—was a healthy 17 percent at the end of last year. Yet Beijing-based Dragonomics, a well-respected consultancy, put China’s ratio at 89 percent—about the same as America’s. Worse still, a growing number of analysts think the Chinese ratio was really 160 percent. At that astronomical level, China looks worse than Greece.

[U]ntil now, just about everyone seemed to be looking to the Chinese to become the new engine of world economic growth. We will surely be disappointed.

And China’s neighbor across the East China Sea isn’t in any better shape. Today, Moody’s reduced Japan’s credit rating to Aa3, the fourth-highest rating. Part of the fault falls on the recent devastating natural disasters, far beyond anyone’s control. However, Japan’s troubles were taking root long before the earthquake and tsunami.

Even before the disasters, Japan’s debt was expected to soar to almost 220 percent of its gross domestic product next year, according to the Organization for Economic Cooperation and Development, which would rank it as the largest debt-to-G.D.P. ratio in the world.

Moody’s said that it was worried by large budget deficits and the buildup of government debt. Frequent change in leadership had prevented the government from pursuing long-term fiscal reform, the agency said, while the recent disasters had delayed recovery. Meanwhile, weak prospects for economic growth were also hampering efforts to curb the country’s debt burden, the agency said.